Liberal government in Canada breaks promise of pension improvements

By Roger Annis, January 2, 2016

Photo by ‘Health Care Transformation Canada’

One week ago, Toronto Star columnist Thomas Walkom wrote a hard-hitting column about the new Liberal government in Ottawa shelving its promise to improve the Canada Pension Plan. His column on the subject was published on December 23.

Amid much fanfare, Liberal Party leader Justin Trudeau made a promise on September 14 to boost the old age pensions of Canadians should his party win election on October 19. CBC reported:

The Liberal plan includes a promise to restore the eligibility for old age security and guaranteed income supplement back to 65 [from the change to age 67 by the Harper Conservatives], a new seniors price index to make sure those benefits keep up with rising costs, a ten per cent boost to the guaranteed supplement for single low-income seniors, and a pledge not to cut pension income splitting for seniors.

Trudeau made his announcement at a staged setting, surrounded by members of CARP (formerly named the Canadian Association of Retired Persons), an organization that has long campaigned for improvements to Canada’s public pension plans.[1]

In reality, the Liberal campaign promise was quite modest. It did not propose any increases to CPP benefit payments, the core of Canada’s three-tiered old age support system. In addition to CPP, Canada’s public pension plan includes the 65-and–older, universal Old Age Security payment and the 65-and-older Guaranteed Income Supplement.[2]

The Liberals did not even propose reversing the punitive Harper measure, effective as of 2012, which raised the penalty for those opting to begin receiving CPP benefits as early as age 60.

Regardless, even the modest Liberal wish-list was placed on hold when provincial finance ministers met with their federal counterpart on December 21. The Star‘s Walkom reports:

They are not doing anything. They are not even bothering to make empty promises about doing anything. After hosting a federal-provincial meeting this week that dealt with the CPP, all Finance Minister Bill Morneau could provide was a promise to study the issue further and meet again.

It was hardly an example of the federal leadership that Trudeau had promised during the election campaign.

Yes, you read that right. Barely two months after winning election, and three months after promising to move heaven and earth to improve public pensions, Prime Minister Justin Trudeau and his Liberal government have shelved this key election promise on social policy. Morneau said on December 21 that finance ministers will return to discussion of the CPP in six months time. Or maybe they won’t. Whatever.

CPP legislation already requires a three-year waiting period to implement any changes that are approved.

Pensions are not the only election promise where the Liberals are backing away. The Liberal government is failing to withdraw its fighter jets from the U.S.-led bombing of Syria. To add insult to injury for peace-loving Canadians, Defense Minister Harjip Sajjan made a five-day tour to the Middle East just prior to Christmas as part of planning for an expanded military role for Canada in the Middle East.

The lesson of the pension experience is that meaningful reforms cannot be expected of the new government in Ottawa. Extraordinary pressure through public education and protest will be required.

Petitions, loud and large public protests, public education—these were the tools used by the ‘Grey Power’ movement in 1985 to force then-Conservative Prime Minister Brian Mulroney to back off from plans to cut inflation protection for pensions. That pressure was not sustained and did not prevent later cuts by the Liberal governments of Jean Chretien and then the Harper Conservatives, nor enough to win significant improvements to CPP. But the example could serve us well today. It sure beats naïve hoping-against-hope, which is about all that can be said for the efforts of Canada’s trade unions on this file during the past five years.

One of the curious failings of the New Democratic Party campaign in the October 2015 federal election was how it was outflanked and outscooped by the Liberals on the pension issue. The party went into the election championing pension improvements, even if its proposals were short on detail. But this never featured largely in the NDP campaign, making it another issue where the party failed to distinguish its program from that of the Liberals.

Notes:[1] The one province in Canada that operates its own public pension plan is Quebec. The Régimede rentes du Québec more or less mirrors the federal plan.

[2] CPP benefits are determined by lifetime income earnings. OAS and GIS are not. According to a Nov 29, 2014 article in the Financial Post, the maximum combined OAS and GIS that a single person could receive for the year 2014 was $15,730; for a couple, it was $ 25,360.

One third of Canadian seniors who receive OAS also receive GIS. In a letter to the Vancouver Sun published on January 2, 2016, the former president of the Canadian Labour Congress, Ken Georgetti, writes:

In 2012, the annual cost of the GIS paid to retired Canadians with no other income except the Old Age Supplement was $9.029 billion. That money comes from general tax revenue — you and I. The number of Canadians employed in workplaces with no pension plan is increasing significantly.

The actuarial predictions made for the government of Canada estimate that GIS costs will grow to $20 billion by 2030 and $36 billion by 2050. These are staggering numbers which really amount to a subsidy to businesses who abandoned the assurances they gave that workplace pensions would make up the difference between CPP and a livable retirement income.

Ontario is charging ahead with a major expansion of retirement benefits while the rest of the country takes at least a year to make up its mind. The province last week appointed Saad Rafi, one of Premier Kathleen Wynne’s most trusted civil servants, as CEO of the Ontario Retirement Pension Plan, the surest sign yet that Queen’s Park is on track to launch the program at the start of 2017.

Federal Finance Minister Bill Morneau, meanwhile, has laid out a 12-month process for studying an enhancement of the Canada Pension Plan. Ottawa and the provinces will make a final decision on CPP in December of this year. If they decide on an enhancement, it could take a few more years after that to kick in.

And ironically, some pension advocates now argue, Ontario’s decision to go it alone rather than waiting for the rest of the country to come to a decision could actually make a CPP enhancement harder. But the ORPP was a key election promise for Ms. Wynne’s Liberals in 2014, and she doesn’t want to wait any longer on the key legacy project.

“We want to ensure that we deliver on our commitment to enhance retirement security for Ontarians. We are moving forward,” associate finance minister Mitzie Hunter, the cabinet minister overseeing the file, said in an interview. “Two-thirds of workers don’t have a workplace pension plan. The ORPP is giving them an opportunity to have that retirement income.”

The ORPP will apply to people who do not already have a comparable workplace pension. It will be funded by contributions from workers, matched by their employers. For someone earning $45,000 annually, the ORPP would return $6,410 a year in retirement if paid into for an entire working life; for someone earning $90,000 or more, that figure would be $12,815.

The pension plan will be administered at arm’s length from the government and run by civil service veteran Mr. Rafi. Formerly the top bureaucrat in the province’s massive health ministry, he most recently handled the high-profile assignment of steering the Pan American Games in Toronto last summer. Between salary and bonuses, he will be eligible for up to $656,250 in annual pay in his new job.

While Ontario leaps off the diving board, the rest of the provinces are huddled nervously by the shallow end, tentatively dipping their toes in the water. Prime Minister Justin Trudeau pledged to pursue CPP enhancement in his winning campaign last year, and Mr. Morneau is now trying to reach a consensus with the provinces. Any expansion of CPP must be agreed to by Ottawa and at least seven provinces representing two-thirds of the country’s population.

Mr. Morneau’s spokesman said he is “absolutely committed to ‎moving forward on enhancing the CPP,” but he does not have a preconceived notion of exactly what the enhancement will look like – whether similar to the ORPP or something else. “Every province and territory brings its own perspective and unique situation to the table, and this will all be part of the discussion as we work collaboratively towards enhancing the CPP and ensuring retirement security for all Canadians,” Daniel Lauzon wrote in an e-mail.

While the other key provinces are all leaving the door open to CPP expansion, some have crucial caveats. Quebec Finance Minister Carlos Leitao said after a meeting last month with his provincial counterparts and Mr. Morneau that any potential expansion should be narrowly targeted at middle-income earners. The wealthy, he argued, have enough money for retirement, while low-income people have access to social programs.

British Columbia, for its part, wants to hold off on CPP expansion until the economy improves, B.C. finance ministry spokesman Brennan Clarke wrote in an e-mail. Alberta is more gung-ho: “The government strongly believes that all Albertans deserve to have income security when they retire and one of the best ways to deliver that security is through responsible phased-in enhancements to the Canadian pension plan,” said Leah Holoiday, spokeswoman for Finance Minister Joe Ceci.

One factor in the decision might be the persuasiveness of the country’s business lobby, which is staunchly against expansion. The Canadian Federation of Independent Business says surveys of its members show 50 per cent would cut back wages and benefits if forced to contribute more to CPP, while 20 per cent say they would have to cut staff.

“The only politicians that believe CPP expansion is a good idea … are those that think Canadians are too dumb to save more for their own retirement. It’s basically focing them to take some of their money today and some of their employers’ money … and put it into CPP,” CFIB president Daniel Kelly said in an interview from Halifax Friday, where he was making his case to the Nova Scotia government.

A Conference Board of Canada cost-benefit analysis commissioned by the Ontario government last year calculated that the ORPP will result in lower GDP growth until 2036, and higher growth after that. This is because, in its early years, ORPP will take in more money than it pays out; once its investments start to pay off and the fund gives retirees more than its taking in, this will pump money into the economy.

In the event of CPP expansion, Ms. Wynne has promised to roll the ORPP into the CPP. But such a move might be more easily said than done. Other provinces, for instance, might not agree to a CPP enhancement as broad or as large as the ORPP. The ORPP requires contributions of 1.9 per cent on salary between $3,500 and $90,000 per year, but the other provinces might only agree to CPP enhancement of 1 per cent to salary between $25,000 to $70,000 per year, for instance.

Susan Eng, executive vice-president of the Canadian Association of Retired Persons and an advocate for CPP enhancement, says the ORPP made sense when Stephen Harper was prime minister and had blocked CPP expansion. But now that the federal government is in favour of it, she argues Ontario should hold off on its own plan. For one, she contends it is duplicative to create an entire parallel administrative structure for ORPP, starting with Mr. Rafi, when it might eventually be folded into CPP anyway. What’s more, she fears the difficulty of integrating ORPP with CPP could ultimately nix a CPP enhancement altogether. “This might pre-empt what happens with the CPP. … Ontario might be the problem rather than being the leader,” she said.

One finance industry source, who spoke on condition of anonymity, said it would be theoretically possible to integrate a larger ORPP with a smaller CPP – for instance, by having Ontario workers pay more into CPP than workers in other provinces and receive richer benefits in retirement – but such a system would be messy to administer.

Neither Ms. Hunter nor finance officials had a clear answer on how this would work. “It is premature to speculate on the details of what a possible enhancement to the CPP would look like. Ontario’s position is that a CPP enhancement should provide adequacy and coverage consistent with what is offered under ORPP,” spokesman Christian Bode wrote in an e-mail.

Such concerns are unlikely to stop Ontario. Ms. Hunter argued that, given CPP enhancement is not yet a sure thing, the province must move forward on its own. “It’s a process that will take time,” she said. “In the meantime, we want to make sure we meet the requirements that we see for Ontarians.”

Roger Annis is a longtime socialist and trade union activist. He began his political activism with the Young Socialists of the day in Nova Scotia while at university. Since then, he has lived in most regions of Canada, including in Montreal where he became fluent in French. He is a retired aerospace worker living in Vancouver. Roger writes regularly on topics of social justice and peace.